Category: Cryptography

Blockchain technology got famous due to the rise of BitCoin and several applications of this technology started becoming visible. The blockchain is a distributed technology where there is no single entity which controls the network and works on the built-in mechanisms to keep the network secure and truly decentralized. This also gave rise to a concept called DApps – Decentralized Applications

With the rise in the monetary value of cryptocurrencies, it was only logical for hackers to devise ways to utilize this new currency. Although this digital currency has built-in protection, hackers are finding ways to steal the currency. News about hacking cryptocurrency exchanges is on the rise. Another method that hackers have found to make money in this new gold-rush is “Cryptojacking”.

ICO means Initial Coin Offering. This is a latest buzzword and latest way startups are raising money. The moment I say “raising money”, you will be tempted to compare this term with IPO – Initial Public Offering. However, hold on. They are similar yet very different.

ICO – Initial Coin Offerings increased multifold in 2017

What is ICO then?

In ICO, a company sells tokens or coins to people of entities who are willing to invest their money in the company’s project or product. The coins or tokens can be purchased in lieu of other digital currencies such as Bitcoin or Ether or even with real money (e.g. USD). The company who is selling the coins announces their purpose of raising the money. Investors who believe in that purpose, purchase those coins. If company’s project or product is launched and successful, one can expect the value of the purchased coins going up. And then the investor can sell his/her tokens and make profit.

All this sounds familiar with IPO, right?

Let’s talk about the real difference.

When you invest money in the IPO, you get shares in the publicly traded company. You get voting rights, you get ownership in the company equivalent to your shares. You could decide to increase your stake in the company. The company is required to disclose all the accounts, audit reports and is regulated by central agency such as SEC (US) or SEBI (India).

However, in case of ICO, you do not get any ownership of the company. Neither you get any voting rights nor you can hope to increase your stake in the company. The only thing that you can hope and can expect is that the tokens would increase in their values and you get your returns.

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Blockchain in simple terms is a chain of blocks. In computer science terminology it is a singly linked list. Each block stores a pointer to previous block along with some data. And hence the name.

How is Blockchain stored?

Blockchain is a distributed ledger comprising of several computers referred as “nodes”. Each node stores entire copy of the chain. Each such copy is independently verifiable. Whenever a new node joins the network, it receives entire copy of the chain.

Characteristics of Blockchain:

Distributed – As mentioned above, there is no single node which is controlling the blockchain. As a result this makes it a distributed system.

Robustness – Since it is a distributed system, it gives robustness to the system. Failure of any single node doesn’t make the system inaccessible, unusable or unstable.

Secure – The data in each block could be encrypted. Each block maintains the reference to previous block. The reference for the current block is derived by using encryption algorithm i.e. hashing the data. As a result, if the data inside the block is changed, the hash also changes. This in turn invalidates rest of the chain on that node. In a distributed system, such nodes get rejected and hence once your data is added to blockchain it is nearly impossible to modify that record.

Transparent – The transparency is only to the extent that every node has a complete copy of the chain. However, data inside each block could be encrypted and hence not every node would be able to read the data.

But what is the use of blockchain?

It has several possible uses. One which currently a buzzword is – Bitcoin – cyrptocurrency. More about this sometime later.

Among other uses, one can use this technology to maintain land records or medical history, audit trail or insurance claim. Typically, where you need to ensure sanctity of entire record, you could put blockchain to use.

Examples of Cryptocurrency:

Blockchain forms the basis of the Cryptocurrency. In Blockchain, the data is stored in verifiable and non-tamperable chain of blocks. This data is stored in a decentralized format i.e. it is stored on multiple computers across the globe. As a result, unavailability of one computer doesn’t stop one from verifying the chain.

Cryptocurrency was invented with the need to have a decentralized system to manage / transact currency. People can use this currency using public key and private key pairs to make a transaction. The transaction is stored using blockchain technology, also referred as ledger. Due to it’s distributed nature and encrypted format, it is very difficult to tamper these transactions.

The algorithm used to generate the Cryptocurrency typically allow a finite sum of currency to be generated. This is different from physical currency which is controlled by governments and federal banks of various countries.

Even if strong encryption techniques have been used, cryptocurrency is not yet fully safe from theft or hacking attempts. Bitcoin itself has seen the theft of cryptocurrency multiple times. However, this technology still gives hope to many observers and experts to have a transportable currency which is outside the influence of governments and central banks across the world.

Exchange value of the cyrptocurrency is also determined by demand and supply. To facilitate the exchange of these currencies, several exchanges are now available across the globe.

Legal status of these currencies varies widely across the globe. Some countries have acknowledge its existence similar to property asset while some have banned. It would take few more years to have wide acceptability of this currency across the world.

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